Real Networks hopes syndication will make up for falling game prices

Dean TakahashiJuly 20, 2009 9:18 PM

Casual games may sound like a lot of fun. But it’s a pretty difficult business these days. Real Networks is a case in point. Its game traffic is increasing slightly, but the money it can make from each game is going down, so it’s constantly having to tune its business to keep on a growth path.

Today, the Seattle-based company is announcing a significant expansion of its game syndication business, where it distributes games to run on other companies’ web sites. It has to do this because unit sales of games overall are up a healthy 46 percent, but average prices per game are down 25 percent. Gamers are playing more games than ever, but the proliferation of free games on platforms such as the iPhone — as well as the recession’s effect on consumer spending habits — are bringing prices down.

Syndication is aimed at getting Real Networks’ games in the hands of more people. This so-called “white label” game business has been around for more than five years, but now the company is aggressively signing up new partners including Comcast, Spil Games, Time Warner and the social network Hi5, said Ben Titera, general manager of North American syndication for Seattle-based Real Networks.

Real Networks has been making games since 2001 and syndicating games since 2003. In the first half of 2008, the company added four syndication partners to its business. But in the first half of 2009, the company added 50 new partners. Partners such as GameStop and Giant Realm now offer games “powered by Real Networks.” Full told, there are now 650 syndication partners.

Part of the reason is that the interest in games, particularly free ones that are monetized by ads or some other kind of business model, is growing fast. Big brands also recognize that games make web sites “stickier,” meaning that sites with games hold on to web surfers for a longer time. Lastly, Real Networks has put more resources into its syndication services.

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It achieved the latter by buying Trymedia, a digital distribution business that focused on the syndication model. Real Networks now distributes more than 2,800 games and reaches more than 45 million monthly unique visitors a month. That’s up just 2 percent from a year ago.

In the past, Real Networks simply focused on the “try before you buy” casual game model. It let players play a game for a limited time for free and then sold them the full version for $19.99. That model worked fine for years, but it came under pressure from ad-based free games and “free to play” games, which are more properly described as a freemium model. In those games, players can play the games for free and then pay for items such as weapons or clothing in micro-transactions, often about 25 cents a piece.

Real Networks hasn’t embraced virtual goods yet, but it is working on it. Meanwhile, it has offered more pricing variety than the “try before you buy” model. Subscription prices are lower now, and the “try before you buy” prices change over time. And Real Networks also offers ad-based games, including games with ads embedded in them.

Real Networks is seeing a record number of ads. Impressions up 11 percent and click rates up 13 percent, but the average revenue per 1,000 ad impressions is down 25 percent from last year. The recession, of course, explains the drop in ad revenue.

Real Networks is focused on redesiging its sites so that users will try out and buy more games. But it remains to be seen if these tactics will be enough to deal with increasing volumes of free or freemium games out there. Real Networks’ rivals include companies such as Oberon Media, which also has a big game syndication business. Real Networks’ game division accounts for a big part of the company’s overall revenue. Last year, Real Networks said it planned to spin out the game business as a separate company. But the weakness in the stock market has stopped that from happening.

Hopefully, Real Networks’ games business won’t just remind us of the Red Queen of Alice in Wonderland fame, where she had to keep running just to stay in the same place.